Use It or Lose It

How to clean up "accrued leave" without hosing taxpayers

Much is written these days about disparities in public-sector vs. private-sector pensions, benefits and compensation. Yet one subject that rarely gets much mention is the variety of "use it or lose it" policies regarding vacation, comp time and sick leave. For whatever reason, many public employers have not yet adopted sufficient controls, and some simply don't enforce them properly. This leaves taxpayers on the hook for weeks, months and even years of unpaid time off. That time is often monetized by retiring employees to enrich their pension benefits or to "check out" ahead of the required retirement age with an extended pre-retirement vacation that can last for months or even years. In one case, a public-sector employee reportedly racked up and collected a half-million dollars' worth of unused leave.

These stories rankle taxpayers, and unduly give many public servants a bad reputation as games-playing connivers whose primary interest is to milk the taxpayers for personal benefit. The media love to cite extreme cases. The problem is even worse when these benefits are cashed in at retirement in pension systems that allow such non-recurring payouts to be included in the lifelong pension formula through what is known as "spiking."

So what accounts for the apparent prevalence of these practices? I use the word "apparent" advisedly here, because many public employers enforce long-established policies to curb such abuses. They should not be tarred with the same brush as those that allow slipshod personnel policies to be exploited this way. But the indisputable fact is that many public employers permit their "exempt" employees — those who are not covered by federal wage and hour laws governing overtime — to play games with the accrued leave at levels that would be curtailed in most private corporations.

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Sometimes there are occupational and budgetary factors involved, as in the case of certain professionals whose service is required but for whom there is no overtime budget. The problem has been especially aggravated during the Great Recession when furloughs were commonly used to reduce payrolls. Well-meaning public servants often work long hours "to get the job done" without thinking consciously about their paycheck, honestly racking up the accrued leave without much thought of compensation — until they got closer to retirement when they recognize its potential monetary value. Others know full well what they are doing. In some cases they seek to accumulate extra hours to ensure their future security in the event of illness, layoffs or furloughs.

In my prior life as a public-sector finance director, I supervised a junior colleague who had been laid off in the private sector. He felt so insecure about his employment that he displayed a palpable need to squirrel away hours to "defend" himself and his family from a second insecure experience like that. Many "omnipresent" employees accumulate sick leave for similar "thrifty" reasons: they come to work sick and spread their germs to others, in order to reserve sick time for an often-imaginary "boogeyman" disability anxiety — or to accrue monetary value if provided by policy.

Needless to say, these same job and health insecurities are common in the private sector, where the risks of layoffs and insufficient health coverage are actually higher than in public service in most labor markets. There is nothing unique about public service that justifies the squirrelling of accrued leave at levels exceeding prevailing private-sector standards. The primary difference is that entrepreneurial and less-unionized private employers have been willing and able to put tighter limits on their leave policies while many highly unionized or bureaucratic public employers have created a "benefits entitlement" culture that fosters excessive accumulations of accrued leave.

As with the abusers who call in sick after partying over the weekend, such employees would be better adjusted to their workplace if they were indoctrinated in the reason for these benefits: to assure a healthy, vigorous, refreshed workforce with work-life balance. More emphasis and attention should be paid to these virtues since, in my experience, it's usually just lip-service at orientation — and a wink of a steward's eye in the union halls.

In some instances, the compensation of exempt supervisory personnel can't keep pace with overtime-eligible subordinates, as is sometimes the case for public safety officers at the command level. To serve the public, they log in equal time with their overtime-compensated subordinates, but there is often no alternative to loosely limited "comp time" to reward them incrementally without inflating their base pay — and bonuses are almost unheard-of in this part of the workforce. Meanwhile, it is cheaper to pay overtime to trained non-exempt safety officers than to pay the costs to recruit and train additional rank-and-file personnel when they are not needed 24x7. Workflow management is thus a part of the problem for many municipalities, transportation departments and other operations with sporadic service-response teams requiring senior supervision.

Public managers need to find better solutions to these workday issues. For example, public employers often permit the accumulation of sick time above private-sector standards in order to discourage excessive use of sick leave for three day weekends. A better approach might be to reward unused sick leave with credits or contributions toward retiree medical benefits, in a defined contribution plan format, which may actually be a more rational approach to the problem. As with many private firms, many public employers force forfeiture of unused vacation and comp time at the end of the year, but practices vary widely on the limits and the rationale for those limits.

Readers: Weigh in here, please. Here's a chance for talented public managers to report on their solutions to the accumulated leave problem. Please provide constructive comments below on ways that you've addressed this challenge, which other public employers might consider. How do you cap and control accrued leave in your organization in ways that are fair to employees, without creating huge future liabilities for taxpayers? In an austere world of pay freezes and furloughs, my bias is toward modest, reasonable hard caps that are strictly enforced, but I'll keep an open mind here and many readers will be more interested in your ideas.

My instincts and past experience would suggest that a buyout program at a fraction of the future dollar today, going into a deferred compensation plan, may be a viable transition strategy to help work toward a more rational world of hard caps. I'd be interested in others' experience with that approach, if any readers have something transferable here.

For those outside government with pragmatic experience from the private-sector work world, what constructive (or if appropriate, critical) tips would you offer to public managers who must often oversee both unionized non-exempt workers and exempt professionals in occupations that don't fit into a 40-hour week and a corporate culture? Please just remember that our readers are looking for pragmatic ideas and not just a stick in the eye.